Upbeat VCs have cash for a few good chips

SANTA CLARA, Calif. – A panel of venture capitalists struck an upbeat tone amid business conditions one semiconductor analyst called “dismal.” The VCs said they see signs of recovery, lots of opportunities amid the chaos of change—and they have money to spend on chip startups.

“I think the U.S. economy is on the way to mending quite well,” said Kambiz Hooshmand, founder of incubator Archimedes Labs LLC (Palo Alto, Calif.). “I think in 2014-15 things will look really bright, and if you are an entrepreneur that is your horizon anyway,” he said in a VC panel at the Server Design Summit here.

Market watchers share a similar outlook for the semiconductor industry. Chip sales this year will be down one to four percent, edge up slightly more than that next year and step up the pace of growth in 2014, according to analysts at Gartner, IC Insights and the World Semiconductor Trade Statistics organization. A report from IHS iSuppli called 2012 the "cold winter of the electronic chip market.”

Amid the short term slump, VCs see big technology and market shifts creating opportunities for startups. “It’s one of the most exciting periods to be a practitioner in the IT enterprise sector,” said Chris Rust, a general partner at U.S. Venture Partners (Menlo Park, Calif.).

Although analysts say IT spending is relatively flat, “where the money flows goes into different pockets,” said Rust. “Traditional functional partitions of servers, WANs, SANs and load balancers are being reinvented in real time with Internet scale data centers, virtualization [and other trends spawning] a chaos that has not happened in a long time, creating unsolved problems and opportunities,” he said.

“Every layer of the stack has to be re-written for the emerging mobile/cloud infrastructure taking shape now, so there are more opportunities than ever,” said Hooshmand.

I was sitting next to Rick when he asked the panelists if any of them were investing in semiconductor companies. Only 2 of them said yes, with only 1 start-up named. That was hardly a great endorsement for IC start-ups, IMHO.
At other VC panels I've attended, there was a great reluctance to invest in IC start-ups due to high capital expenditures required and a relatively long time to gain ROI via exit.

Great point, but with fabs consolidating into fewer hands and critical items like EUV becoming big industry pushes, is there a market for a startup there?
I recall sometime ago Sun co-founder turned investor Bill Joy told me there are opportunities for startups leveraging the infrastructure of what you can do with all that wonderful installed high tech gear.

It's nice that the VCs are willing to look at chip technology but what about chipmaking equipment technology? The Bay Area VC community fueled much of the system, sub-system and critical component technology developments in the 70's,80's and into the 90's but then they turned tail and ran. As a result equipment technology is stagnating and innovative products are left stranded after entrepreneurial resources are depleted. This does not bode well for the future.

On the surface, this is good news for the chip industry. But I hope the VCs who pledged their interest in backing semiconductor firms aren't just playing lip service to the industry. They've been telling us over and over it's just not worth their bet.